“Greeks are protesting new austerity measures” is a common headline these days. It definitely captures some of what protesting Greeks are doing, but certainly leaves a whole lot out of the picture. Many Greeks are protesting not only the deterioration of their standard of living, but equally importantly, what they experience as a political disenfranchisement that has been orchestrated by the government, with the collaboration of the European heads of state. The situation in Greece is going to get much worse not only because of the economy, but also because of the repressive politics that are threatening to ignite Greek society.

To understand the Greek political cauldron you need to put yourself in the shoes of the average salaried Greek and what she has experienced these past two years. Picture this:

I have argued previously (here) that the EU/IMF/ECB insistence on “flexibilizing” labor law in Greece overlooked the basic structure of the Greek private market, which consists overwhelmingly of small, family owned and operated businesses, with ultra –flexible wage arrangements (a wife’s labor, especially, is often unremunerated). Add de facto non-enforcement of labor law even in the tiny segment it applied to and the massive informal sector and you end up with one of the most flexible markets, labor cost-wise, in Europe. Moreover, despite the infamous Greek welfare “drones” in the media, Greece does not have a welfare regime comparable to the rest of Europe. In fact, much like in the US, the Greek family internalizes most of the cost of basic services such as education, healthcare, housing. State employment and pensions have for a long time played the role of a substitute for the lack of such a welfare regime, for those of course who could access these jobs, usually on the basis of clientelist relations. The basic structure of state employment included jobs distributed widely among the client base of the governing party, with wages too low as remuneration and too high as welfare, along with privileged wages and perks for a narrow elite group within the public sector. Average wage and pension levels remained well below European levels before the crisis, while consumer prices had skyrocketed and remain among the highest in Europe even today.

All this may help clarify the compounded impact of the austerity measures on the average Greek. Dramatic wage cuts in both the public and the private sector, along with a largely successful program of taxation mainly targeting the salaried and small businesses transformed private sector workers and the average public sector worker into a newly struggling lower middle class or the newly poor-depending where they started from. The tax campaign also led to the closure of tens of thousands of businesses, while consumer prices remained steadily high. During all this, the family has been providing basic welfare except with less capacity to absorb the cost as unemployment skyrockets and the wages of those who have jobs are slashed. According to a friend, the new trend in one small city in northern Greece is for families to take in elderly relations, aunts, uncles, in return for their pension. People in their mid thirties, who had barely made it out of the parental household before the crisis are now moving back in. In Athens, which has been hit the worst, new forms of solidarity are being invented everyday (such as the “social kitchen” advertised here), but redistribution within the family still remains the main shock absorber. Overall capacity for shock absorption, however, may be busting at the seams as can be seen from Sunday’s events.

We have been hearing about the oncoming endgame to the Greek saga for almost two years now. Several developments have occurred in the past few months that may make the prediction come true sooner rather than later.

The first is a seeming shift in the attitudes of European leaders. They are not blinking in the face of Greek government resistance to the punitive conditionality of the loan agreement. In fact, they are asking for such extreme measures in the face of a complete collapse of the Greek economy that one is forced to wonder whether their aim is rather to “volunteer” Greece for a default and, perhaps most of all, a euro exit. In any case, the tone of the debate has changed considerably, with many more European voices openly discussing the scenario of a default and euro exit, some confidently asserting that Greece’s collapse will not be Lehman. A FT article last Monday nonchalantly reported that the troika was using the threat of a hard default as a bargaining chip against the Greek government. This is an amazing statement. It can mean several things: 1) the troika thinks the famous firewall is now in place to avert the infamous contagion effects 2) the troika is playing a hard game of chicken to see who blinks, even though it doesn’t want Greece to default 3) the EU and the ECB are posturing to appease northern Europeans by showing they will really not take any equivocation from Athens on austerity, while Greek politicians are also putting up a show for the sake of their own electorate. Whichever of these things is going on, it signals a remarkable willingness to take the risk of no deal on both sides.

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